Illinois’ general fund budget deficit grew by 52 percent in fiscal 2017 to a record $14.6 billion as political feuding pushed the state deeper into the red, according to an annual financial report released on Thursday by the Illinois Auditor General.

The ballooning deficit, as measured on a generally accepted accounting principles (GAAP) basis, underscored the cost of an impasse between Illinois’ Republican governor and Democrats who control the legislature. That tussle left the state without complete budgets for an unprecedented two straight fiscal years.

What is kept a secret is the cause of the deficit. In fact, keeping that secret is a veritable cottage industry in Illinois. Now, as the linked article above details, a big part of the current budget deficit has to do with the fact that the Republican Governor Bruce Rauner cut taxes, then refused to sign a budget for two years. But, beyond that idiocy of Bruce Rauner, there is still a structural problem with Illinois’ budget. And there is big money being spent to keep that structural problem a secret.

The Illinois Policy Institute has become a ubiquitous presence in Illinois for the past several years. It spends big bucks convincing the people of Illinois that the State’s budget problems are due to teacher salaries, police pensions, firefighter pensions, etc. And, aiming at the voters in the parts of the State that are not attached to Chicago, it typically lays all of the blame on the City of Chicago.

Why is it doing this? It is trying to distract from the structural problem with Illinois’ budget, which is actually the way that the State’s income tax is structured. And there is alot of money being spent on this distraction.

Funding

IPI does not list its funders publicly. Its website states: “Because the Institute is a 501(c)(3) nonprofit charitable organization, our supporters’ names are kept private, although donors are free to share their reasons for supporting our efforts.”[47]

Harry Bradley was one of the original charter members of the far right-wing John Birch Society, along with another Birch Society board member, Fred Koch, the father of Koch Industries‘ billionaire brothers and owners, Charles and David Koch.[6] “Bradley was also a keen supporter of the Manion Forum, whose followers believed that social spending in America was part of a secret Russian plot to bankrupt the United States,” Jane Mayer writes in Dark Money.[7]

In the same book, Mayer details that, “The event that multiplied the Bradley Foundation’s assets by a factor of twenty almost overnight, transforming it into a major political force, was the 1985 business takeover in which Rockwell International, then America’s largest defense contractor, bought the Allen-Bradley company, a Milwaukee electronics manufacturer, for $1.65 billion in cash. The deal created an instant windfall for the Bradley family’s private foundation, which held a stake in the company. Its assets leaped from $14 million to some $290 million.[7]

It is difficult to discern how much money is spent on SPN groups, as SPN and its affiliate groups are not required to disclose donors. SPN Executive Director Tracie Sharp told the Wall Street Journal in 2017 that the revenue of the combined groups was some $80 million.

Richard (Dick) Uihlein, son of Edgar Uihlein, is an American businessman and billionaire who co-founded ULINE Corporation in 1980, a shipping and packaging materials company headquartered in Pleasant Prairie, Wisconsin.[1] Uihlein has contributed tens of millions to conservative campaigns and causes. Daniel Bice of the Milwaukee Journal Sentinel wrote in 2015 that the Uihleins “are quickly becoming the Koch brothers of Wisconsin politics.”[2]

Rauner was the Chairman of private equity firm GTCR, where he had worked for more than 30 years, starting in 1981 after his graduation from Harvard[4] through his retirement in October 2012.[13] A number of state pension funds, including those of Illinois, have invested in GTCR.[14]

…In 2015, Rauner reported earnings over $180 million, an average of more than $3,000,000 per week.[20]

Okay, now that we know some of the people behind the pervasive campaign that is being waged in Illinois to blame Chicago teachers, police, and firefighters for all of Illinois’ budget woes, let’s look at what they are trying to distract from: the real cause of Illinois’ budget woes, the income tax structure.

David: Well, I think our tax system is flawed in many ways. We’re probably not the worst in the country. What we do have is an unusual reliance on property taxes and flat income tax which, for high-income states, is a little bit unusual and those two things make us somewhat distinctive.

…

Andy: Is our tax system fair?

David: I wouldn’t regard it as fair at least to the extent that you think about progressivity. Different people have different conceptions of what’s fair. We don’t do a lot in Illinois to reduce the burden on low-income people or to shift some of the burden towards high-income people. We’re somewhat of an outlier on that.

…

David: On the state level, that’s correct. We’ve made the decision to make it a local responsibility largely and the problem with that is, of course, some districts have much higher need and much lower resources than other districts, so that’s a real problem.

To expand on these answers by an economics professor, Illinois has a flat state income tax. That is the main problem facing Illinois at this time. Why? Because it results in the rich being taxed less, as a percentage of income, than the poor and middle class. To see how that happens, let’s look at the state and local tax burden of a hypothetical wealthy person like Bruce Rauner, who in 2015 earned $180 million, and compare with someone, like a Chicago teacher who earned the average salary of $70,000.

Each would now pay 4.95% of their income for the state income tax. Seems fair, right? Not so fast. There are other state and local taxes besides the income tax.

How much sales tax Bruce Rauner would pay is difficult to ascertain. So, let’s look at a couple options. First, lets say he spent $50 million buying things in a single year, surely a huge amount of purchases, that can hardly be possible. Then, let’s look at a still huge amount and say he spent $10 million. Lastly, we’ll assume he spent a more reasonable $1 million, which is still almost unfathomable to 99% of Americans.

These would be the total sales taxes paid by Bruce Rauner for those spending amounts, assuming a 10% sales tax. $5,000,000 or $1,000,000 or $100,000.

Now, let’s look at the sales tax paid by an average Chicago teacher. Assuming they own a house with a $6000 tax bill, they are likely paying about $1500 a month on their mortgage, which leaves them with an after tax amount to spend in a year of about $38,000, a little more than half of their salary. 10% sales tax would equal $3,800.

Okay, so let’s look at their overall state and local tax burdens.

The Chicago teacher would pay $3,465 in state income tax, $6,000 in property tax, and $3,800 in sales tax. Total = $13,265 in state and local taxes, or 19% of their salary.

Now, let’s look at the 3 possible tax burdens of Bruce Rauner, depending on how much he spent ($50 million, $10 million, or $1 Million). Income tax would equal $8.91 million. Property tax would equal $0.06 million, and sales tax would equal either $5 million, $1 million, or $0.1 million. Total state and local taxes would equal either $13.97 million, $9.97 million, or $9.016 million, or either 8%, 5.5% or 5% of Bruce Rauner’s earnings.

Can you see why Bruce Rauner and the other millionaires and billionaires love Illinois’ flat state income tax? Even if they spend a ridiculous $50 or $10 million in a single year, they are still paying well less than half the % of their income in state and local taxes compared to someone in the middle class.

Rauner said in a recent radio interview that “every state that has put in a graduated income tax, the middle class always pays more.”

Illinois is one of only eight states with a flat tax rate.

…

“Rauner’s claim that graduated systems inevitably lead to higher taxes on the middle class is not even close to accurate,” the BGA found. “We rate it false.”

Illinois does have a politician who is not as greedy and as willing to lie as Bruce Rauner, though: the Democratic nominee for Governor, J.B. Pritzker:

Rauner’s Democratic opponent, J.B. Pritzker, who has been the target of Rauner’s claims on progressive income taxes, has declined to specify a system of tax rates and brackets, saying it’s something that would have to be worked out with the General Assembly once the state constitution was altered to permit a progressive tax. But Manzo, working from a proposal from the Center for Tax and Budget Accountability, said the state could cut the tax rate to 4.5 percent for anyone making less than $100,000, keep it level at 4.95 percent for those making $100,000 to $300,000, and create three brackets ranging from 8 to 9.85 percent for those making more than that.

“This proposal would cut taxes for 98 percent of Illinois taxpayers, raise them on the richest 2 percent of Illinois tax filers earning $314,000 or more, and generate about $2 billion in revenue to help close the state’s structural deficit,” Manzo said. “This proposal would stimulate consumer spending by raising taxes on the rich and lowering them on the bottom 98 percent, who spend a higher portion of their incomes back in the economy.”

The fact is, the biggest problem with Illinois’ budget is that the rich aren’t paying their fair share to the State. This has left the State’s budget broken, so it hasn’t been able to fully fund things like schools. Which has led to local municipalities having to pick up the slack by raising property taxes and sales taxes, which has increased taxes on the middle class, while barely affecting the rich. It’s time to turn this dynamic around. It’s time for Illinois to join the group of 32 other states who have a progressive state income tax structure, so the rich can pay their fair share, and the middle class can get some relief.

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Middle American Democrat opinion articles solely represent the views and opinions of Middle American Democrat, a private organization that is not affiliated with any national, state, or local political party. As the name suggests, the views of Middle American Democrat are often aligned with liberal political viewpoints, though this is not always the case. First and foremost, the views expressed in each opinion article strive to be aligned with what is believed to best for the people of Middle America.